1.. You expect to receive $500 in five years from an investment. What is this investment...

1.. You expect to receive $500 in five years from an investment.

What is this investment worth today if the effective annual interest rate is 12%?

(Round to the nearest cent and do not enter the dollar sign)

2..If $300 is invested at a 4% interest rate, how much compound interest will be earned in 4 years?

(Round to the nearest cent and do not enter the dollar sign)

Solutions

Expert Solution

1. Future value of investment is given by = present value of investment * (1+ interest rate) ^time

Given future value = 500

Interest rate =12%

Time = 5 years

Hence

500= present value of investment (1+12%)^5

Present value of investment = 500/(1+12%)^5

Present value of investment =500/1.76234

=283.71

Compound interest is given as = principal *(1+interest rate) ^time - prinicipal

Given

Principal =300

Interest rate=4%

Time = 4 years

Hence

Compound interest =300*(1+4%)^4-300

=300*1.169859-300

=50.96

Hence compound interest =50.96

jeff jeffy answered 2 years ago

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